SME Finance: Beyond Traditional Banking Routes

Business Insights

Securing business finance can provide an immediate boost to business growth and sustainability, yet for many small and medium enterprises (SMEs) across the UK, the path to securing funding through traditional high street banks often presents a labyrinth of challenges and limitations.

5 Roadblocks of High Street Banks

There can be a number of issues when it comes to business finance lending from banks including;

    1. Rigid Lending Criteria

High-street banks are known for their standardised lending criteria. The inflexible nature of these criteria often leads to rejections for businesses that deviate even slightly from the established norms. Factors such as business age, credit history, and collateral requirements can severely limit access to funds.

    2. One-Size-Fits-All

Building on that point, a major challenge with high street banks is their tendency to adopt a one-size-fits-all approach to lending. As a result, SMEs find themselves constrained by predefined loan structures or payment plans that may not align with their unique business models or growth trajectories.

    3. Slow and Lengthy Approval Processes

Navigating through red tape often leads to prolonged approval processes and delays that hinder timely capital injections, project deadlines or winning contracts impeding opportunities and stifling growth potential for agile SMEs.

    4. Limited Scope of Offerings

To minimise risk, high street banks typically offer a limited spectrum of financial products, catering to a narrow range of business needs. This narrowed scope may not encompass the funding options required by SMEs operating in varied industries or at different stages of growth.

    5. Mitigating Risk

Traditional banks tend to shy away from supporting ventures perceived as high-risk or unconventional. This cautious approach results in potentially promising businesses being overlooked or dismissed solely based on their perceived risk profile. Innovative ideas or ventures with unproven but viable concepts can struggle to secure the necessary funding through these channels.

The Future of SME Financing

The traditional way of turning to banks first could very likely change as more finance providers come to market offering the flexibility needed to cater to the vast array of business types and requirements across the UK.

The future of SME financing lies with alternative providers that work with a business to create a custom finance deal. Using a broker such as Portman Finance Group who can do the majority of that for you, will search the market through their panel, find options and combinations that suit your business circumstances and goals and take care of the admin burden. Flexibility and breadth is where alternative finance providers can offer much more than their traditional counterparts.

But I Trust My Bank, Why Would I Use a Broker?

Think of using a broker a bit like using a comparison site, provide your criteria, discuss your business goals and history, then let us come back to you with options or match you with the lender best-suited to your needs. A hybrid lender-broker such as Portman, can also consider whether your business meets internal underwriting criteria, giving you access to funding options not available elsewhere. There are a three major benefits to exploring the alternative finance market:

    Breadth of Options

There are a number of financial products available to businesses. Typically, a bank will have a limited range of options, which might not include the best option for you, or allow you to access or to repay funds in a way that suits you.

    Breadth of Lenders

There are 2 major benefits to working with a panel of lenders. Firstly, your business is more likely to receive an offer of finance because multiple lenders can be approached that may specialise in your industry, the assets you are looking to buy or businesses in similar circumstances. Secondly the ability to source finance from multiple lenders means the ability to fund various elements of a project, using finance for a greater range of applications. Hard asset finance for vehicles and machines, soft asset finance for furniture and technology, business loans for projects and short-term funds for operational costs can all be sourced together.

    Speed and Flexibility

If speed is your priority, whether to capture an opportunity, win a contract or cover costs, banks aren't always the best choice. Often process-driven and bureaucratic it can take several weeks to obtain funds from a bank, by which time your moment may have passed. Brokers like Portman are designed to be reactive, if you really need funds within 24hours and you have your business documents ready, chances are it can be done.

When considering how to secure funds for your next business investment, make sure you look at all your options and consider the alternative finance market in comparison to your bank.

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Portman Finance Group

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